Posted on 07/23/2002 4:27:32 PM PDT by Lazamataz
The Financial Times is running a story tonight which starts: " Citigroup and JP Morgan Chase shares went into free fall on Tuesday..." More at http://www.freerepublic.com/focus/news/721175/posts
We haven't had much good news lately. Starting to wonder if this is just beginning the second round.
Gold is a "thing". It took a pretty solid hit today; something on the order of $10.75. My initial guess is that someone dumped a bunch of gold on the market, possibly taking profits on some metals they bought 2 years ago.
Freddie Mac, the government-sponsored mortgage financier, said net income rose 21% in the second quarter. But the company's retained portfolio of home loans contracted, and the company said future portfolio growth will be slower than expected.
Freddie Mac said net income was $1.11 billion, or $1.50 a share, compared with $914 million, or $1.24 a share, a year ago.
Those results included the effects of Financial Accounting Standard 133, or FAS 133, an accounting rule that took effect last year that requires companies to record changes in the market value of their derivatives each quarter. Freddie Mac uses derivatives to hedge some risks associated with owning home loans. Freddie Mac has argued that results including FAS 133 don't accurately portray its true financial position, in part because the rule doesn't require the company to record changes in the market value of some assets. Excluding FAS 133, Freddie Mac would have earned $968 million, or $1.30 a share, up 26% from $769 million, or $1.03 a share, a year earlier
We already have more scandals than we do people to investigate them. The investment portfolios of insurance companies are just yet another ticking bomb. Where are they going to get the cash needed for reserves and claims? It is a house of cards in a wind storm.
Richard W.
Today was an absolutely gut-wrenching day to be in gold equities. The only thing worse could be owning stocks of JP Morgan and Citicorp!
The difference is, tomorrow the miners will still be digging gold. JPM and C will be giving sweaty testimony and trying to stay out of jail and/or default.
IMHO, part of this precipitous drop in gold today was the machinations of the above two heavy hitters in gold derivatives who were running for their financial lives when their SHTF!
JPM alone is responsible for more gold on derivative paper than will be mined in the entire world in the next two years! They couldn't let themselves be more exposed to the tune of many more billions of dollars if the gold price got out of control on the upside. Therefore, they beat it down by hook or crook (not hard to do when you have billions of dollars in the bank).
Somehow, they have to hold the gold price down so they can unload that gold derivative monster without it taking them down with it! But, that will probably take years, as options go waaay out there. They don't have years. With the latest revelations, they may have only weeks before their jig is up?
On the bright side, gold stock volumes were up. A lot of it was being bought by institutional investors. They must know something we don't! They were selling most everything else. Of course, somebody else was also selling hard as prices were down 5-25% across the board, even for the strongest stocks!
We'll see what happens tomorrow.
The institutions. Retirement funds. 700 to 1 leverage. {expletive deleted}.
Somebody somewhere needed to raise cash.
You couldn't help buy take note of the overnight move to push the market up today. Futures were strong by 6:00 am ET and the market popped for 100 points on the DOW. PPT or foreign hedge fund? Who knows, but there are rumors -- lot'sa rumors floating around. Those who know, aren't talking.
Anyway, from 100 up to 80 down is a considerable drop again. The manipulation didn't work or the player didn't have enough support to keep it going. We might explain it as simply gold being sold to buy dollars, but I have a feeling that this is a move that didn't work out as planned and someone took a hard hit.
I have a bad feeling about tomorrow because of todays failed rally and the investigation of JPM and C. It could get ugly. . . but that's just my opinion.
Richard W.
Thanks, Richard. My first impression was that someone was profit taking from their gold, but why would they sell it down so much. There was certainly a considerable amount of metal (or paper metal) dumped on the market. Somebody that is in so deep that they have to tank the gold market to keep their margins is way overextended.
You stand a good chance of being correct, but I'll wait a day or two to see. I could predict a couple of other patterns developing here, though I don't think they are as likely. Remember that 8000 is a milestone. Could be the combination of someone taking gold profits to take a new position in the market along with some people shifting from short positions to neutral. Considering the amount of movement oin gold though, I suspect that you are closer to right on this one.
You are right. However, the Fed has been attemping to reflate (my opinion) as you can see by this chart on the Adjusted Monetary Base.
The Fed numbers were the first place I looked when I saw gold falling but I couldn't find what I was looking for. That big a drop must have been something else besides the Fed draining liquidity.
Turmoil in the insurance industry is catching hardrock mining companies between a rock and a hard place.
For years, mining companies have depended on insurers for financial guarantees to government agencies assuring that lands affected by mining would be properly cleaned up. But following the massive hit to the insurance industry after Sept. 11, as well as the Kmart Corp. and Enron Corp. bankruptcy filings, numerous insurers are refusing to issue the so-called reclamation bonds, saying they are too risky.
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At the same time, state and federal agencies have been sharply increasing mining companies' bonding requirements, forcing some companies to ante up more than 100 times as much money as before to ensure taxpayers won't have to bear the cost of reclaiming former mining lands. All this while prices for gold, copper and many of the other metals the companies extract remain well below historic highs, crimping corporate profits. |
To Big to Fail and Too Big to Bail
Richard W.
The only bubble left is the housing market and even that is on a shaky foundation of debt.
A bursting housing bubble will not necessarily wipe you out like a bursting equity bubble can. When your Enron or WorldCom or Global Crossing stock is gone, it's gone. The nice thing about housing is that it has inherent value. You can still live in it even when the housing market craters. There's nothing to do with stock in a company that no longer exists. Your house will normally be worth at least SOMETHING when the dust settles, unlike stock in a dead company.
Of course, if you lose your ability to pay the mortgage (assuming you have one), you're sunk. This applies to real estate investors as well as to home owners. There's a down side to every investment.
I'd like to hear the "analysts" who helped pump up the equities bubble admit holding stocks can be ruinous in a bear market. But we are still hearing about nearing the bottom and holding on for the upturn. Did these people call the "top" in 2000? No. And they can't call the bottom.
That's been a concern of mine for some time...those annuities. What's going to happen when people who have been paying for years into 403B's (annuities for teachers and someother non-profit organization employees) go to collect them? There's no FDIC insurance there, the insurance companies have set up their own agreements to cover each other.
Interesting that nobody in the media seems to bring this up. And, I still don't hear many financial advisors suggesting insured CD's for the disenchanted.
To Big to Fail and Too Big to Bail
The same is true for Fannie Mae and Freddie Mac. One way or another she's coming down like a lead zepplin.
See post 9.
This is the part of the housing market that is at risk. There are a lot of loans out there that are less than 10% equity, including a rather large 2nd mortgage market. Now, most of us have at least 20% equity and can survive a bad market better than others can. But, if things get tight in the job market, the housing situation will quickly grow worse for many people.
The stock market isn't directly connected to the consumer market, but it isn't disconnected either. People have savings in the markets. If the value goes down enough, they will view it as threatening and will tighten up their spending. This will be the downward effect that could tank the economy.
Eventually, the GSE money pumps will run out of suckers. A Fannie Mae implosion would simultaneously compromise the bond, stock and real estate markets.
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